Nuclear power should be generating a major boost in business

That gives nuclear power the highest operating rate and is one of the reasons it's undergoing a renaissance.

In a world concerned about global warming, nuclear power is cleaner than gas or coal, and much safer than it was in 1979 at the time of the Three Mile Island accident, said John J. Hirt, who is seeking an MBA in finance and is participating in the University of Wisconsin-Madison business school's Applied Security Analysis Program.

The U.S. is behind the rest of the world in the amount of nuclear power it generates.

But that may be changing.

The Department of Energy's Energy Information Administration estimates between 250 and 500 baseload plants - those that run all the time - will be needed in the U.S. by 2030. The U.S. Nuclear Regulatory Commission has received applications over the last few years for 25 new reactors to complement the 104 plants currently in use.

"I think we're finally starting to take this seriously," Hirt said.

There are risks, of course. No one knows for sure how much it will cost to build a nuclear power plant in the U.S., but once it's up and running, "it's about as cheap as you can get," Hirt said.

There are also concerns about the safe disposal of spent nuclear fuel, but all the spent fuel created in the last 40 years would fit on a football field stacked seven yards high, and much of it can be stored at the plant site, according to the Nuclear Energy Institute.

Investors who believe the U.S. will move toward using more nuclear power might want to consider some of the stocks Hirt is analyzing:

Japan Steel Works Ltd. (JPSWY, $52), Tokyo, makes products from casts, forged steel and plastics. The company is the only major producer of large, steel-forged radiation shields for nuclear power plants, Hirt said.

Japan Steel Works' stock doesn't trade very much, but its customers are putting down $100 million deposits just to hold a place in line for the radiation containment forgings, Hirt said.

"They have a big, first-mover advantage. For the competition to come in and get up to speed would take three to five years," he said.

Cameco is the world's largest producer of uranium, a critical component in producing nuclear reactions. Uranium prices have been coming down, but if there is a significant build-out of nuclear power plants, they'll go higher again, Hirt said.

Cameco mines roughly 20 million pounds of uranium a year, and has 500 million pounds of reserves, he said.

Exelon Corp. (EXC, $54.24), Chicago, distributes electricity and gas to customers in Illinois and Pennsylvania. The company holds the largest number of nuclear power plants in the U.S., Hirt said.

"If anybody can operate a nuclear facility, it's these guys," he said.

Exelon's stock has dropped dramatically since July, but if gas prices start rising, the company will be able to increase its rates. That would give it much better profit margins on any new nuclear power generation contracts, Hirt said.

Shaw Group Inc. (SGR, $17.89), Baton Rouge, La., provides engineering, construction and other services for government and private sector clients. The company gets about 50% of its revenue from engineering and from designing fossil fuel and nuclear components and parts, and performing maintenance on power plants, Hirt said.

Shaw Group is in partnerships to make reactors for plants in the U.S. and overseas, he said.

The company has a backlog worth about $16.5 billion and has been selected for contracts that could be worth as much as $38 billion more, Hirt said.

Hit by the credit crunch's grip on the economy and flagging energy construction trends, Shaw Group's stock price is down from a high of $77.20 in November 2007. It is trading around its 52-week low.

The biggest risk Hirt associates with Shaw Group's shares is the possibility some of the backlog orders could be canceled if government incentives for nuclear energy diminish, construction costs are much higher-than-expected, or gas and coal prices stay low. There's also a timing risk, as it will likely take seven to eight years for any new U.S. nuclear plants to be up and running, he said.

"But if this nuclear renaissance materializes, a company like Shaw Group benefits," he said.

Hirt is analyzing the company to determine whether it should be added to the Applied Security Analysis Program's portfolio. He says the shares could trade as high as $25 in the next two years.

"I'd establish a small position and continue to add to it over the next three to six months," he said.